Results for “education signaling” 84 found
Signaling vs. credentialism
The relationship between education and earnings is not entirely market driven. Within the government sector, pay grade is affected by education levels. Government also has educational credentials that affect many professions, including teaching, health care, and law. That is why I do not look to signaling as the explanation for the returns to schooling. For signals of ability, there are alternatives available. But strict credential requirements leave no alternative.
There is more at the link. While I trust the best individual researchers in the area, I share Arnold’s fear that the macro-organization of the education field is not structured to produce totally objective results. Still, a natural experiment showing a high signaling premium would yield accolades to its author and I still would like to see your nominations for the best work — and I do mean natural experiments — pointing in this direction.
More on the returns to education
First, apologies to Arnold, I missed his post when traveling and so he does discuss natural experiments, contrary to my previous claim about EconLog bloggers. That said, I’m not so happy with his analysis. He’s taking a few of the papers he sees as the weakest and he explains why they are weak. I would rather he dissects the strongest pieces and compares them to the strongest pieces, using natural experiments, showing very low rates of return to education. The Joshua Angrist papers (often with Alan Krueger) for instance are quite sophisticated and do not run afoul of Arnold’s objections. In works such as this (later versions seem to be gated), Angrist and Krueger perform exactly the natural experiment which Arnold requests and they find high (marginal) returns to education. Or see this piece by Card.
Here is Bryan’s response to my post. Focus on his #2, which is the crux of the matter:. He cites the signaling motives for education and concludes: “Here, the evidence Tyler cites is simply irrelevant.” This is simply not true and indeed these papers are obsessed with distinguishing learning effects from preexisting human capital differences. That is what these papers are, so to speak. In that context, “ability bias” in the estimates doesn’t seem to be very large, see for instance the Angrist or Card pieces linked to above. This paper surveys some of the “adjusting for ability bias” literature; it is considered quite “pessimistic” (allows for a good deal of signaling, in Caplan’s terminology) and still it finds a positive five percent a year real productivity gain from an extra year of schooling.
What’s striking about the work surveyed by Card is how many different methods are used and how consistent their results are. You can knock down any one of them (“are identical twins really identical?, etc.), but at the end of the day which are the pieces — using natural or field experiments — standing on the other side of the scale? The Card results are also consistent with theory, namely that models which emphasize signaling imply large unrealized gains from trade; it’s not that hard for an employer to administer an implicit IQ test as Google and Microsoft do all the time. As a separate (and here undocumented) point, I would argue the Angrist and Card results are consistent with the bulk of results from sociological and anthropological investigations.
There really does seem to be a professional consensus. Maybe it’s wrong, and/or dominated by biased pro-education specialists, but I’m not seeing very strong arguments against it. For the time being at least, I don’t see that there is much anywhere else to go with one’s beliefs. If Arnold or Bryan (or David) suggests a good paper with a natural experiment showing a low marginal ROR for education, I am happy to read the paper and report back and compare it to the preponderance of evidence on the other side.
The real puzzle is how large measured marginal returns to education are consistent with the continuing observed failures of the American educational system. Why does the low-hanging fruit persist or is it low-hanging at all? The traditional liberal view is that further educational subsidies are needed, but a possible alternative is that some people simply do not wish to step across to the other side of the divide to a “better life,” at least as defined by middle class values and income statistics. Or is there some other hypothesis? Whichever way you cut it, a big improvement in this area does not seem about to happen and arguably we are moving in the opposite direction. Whatever gains are there “in the data,” we don’t seem able or willing to capture them.
Archibald and Feldman respond on education
The discussion, which includes a reply to my previous post, is here, excerpt (but do read their entire response):
Next, we don’t see strong barriers to entry on the institutional side, either. In 1970, eight million students were enrolled in 2,000 American colleges and universities. Today, over 18 million are enrolled in roughly 4,300 institutions, according to the Digest of Educational Statistics. There has been a veritable explosion of places at for-profit and not-for-profit institutions alike. To take one example from the traditional nonprofit sector, the University of Central Florida has mushroomed from a start-up to one of the largest institutions in the nation in a relatively short period of time.
Competition among pre-existing universities has also grown more intense. As Caroline Hoxby has noted, the fraction of students attending schools within their own state has declined steadily since the 1940s.
"The quantity supplied is going up" does not equal "the quantity supplied is not restricted." There is a lot more non-pasteurized cheese consumed in this country than twenty years ago, but it is still very much restricted.
Accreditation constraints and social signaling constraints (a market failure, I might add) are two reasons why we don't see more effective competition in the higher education sector. In what other economic sectors are the major quality players more or less the same decades later? Apart from adding on a west coast, the list of top players hasn't changed all that much in a century. There's something funny about this sector which we are not being told about, although I will agree the exact nature of the reputational stickiness remains a bit mysterious. It is related to why the U.S. edge in higher education remains relatively robust, even when we have lost our edge in many other sectors. Catch-up is hard.
On UCF, it is ranked #97 among public universities. It seems to offer reasonable value, as such schools go, but it has hardly turned the market upside down. George Mason also has grown from small to huge (about 30,000 students). The question is why this kind of entry hasn't lowered prices. What I see is lots of "more of the same" competition, little scope to experiment with true cost-cutting and different products, and so growing supply matches demand but has not been a force for major price declines relative to median wages.
The growing polarization of U.S. labor market outcomes has helped, indirectly, subsidize a lot of inefficiency in the upper tiers of U.S. higher education. People are willing to pay for the ticket, just as the airlines can get away with more inefficiency when travel and migration demands are high.
If I'm analyzing the high and growing prices for U.S. colleges and universities, I would start with some of these basic observations.
From my paper on for-profit education
Up through the 1980s, the Philippines offered a relatively level playing field for non-profit and for-profit institutions of higher education. What was the result?:
Unlike Filipino non-profits, the for-profits typically did not have entrance examinations, and accepted any student who has completed a secondary education and can pay the relevant fees (Zwaenepoel 1975, pp.163-4). From a survey of Manila institutions, the for-profit institutions had an average student to fulltime faculty ratio of 27:1, whereas the non-profit religious institutions had an average ratio of 19:1 (Miao 1971, pp.71-2). For-profit institutions tend to invest in classrooms to accommodate large enrollments, rather than investing in library facilities, book holdings, or laboratory facilities. Furthermore, Filipino for-profit institutions tend to limit their class offerings to low-cost, labor-intensive classes, such as teacher education and commerce (Zwaenepoel 1975, pp.322, 342, 348, 587). As of 1970, nonsectarian institutions (typically for-profits) spent four percent of their total budget on sites, equipment, and facilities, whereas sectarian institutions (typically non-profits) spent a much higher 12.41 percent (Isidro and Ramos 1973, p.157). As of 1971, for-profits held an average of 2.58 books per student, whereas non-profits held an average of 8.9 books per student (Zwaenepoel 1975, pp.347-8).
Filipino for-profits also produce a different kind of education. Students from for-profit institutions tend to take standardized vocational exams in much greater number, although they pass them at a lower rate. These facts reflect both the vocational emphasis of for-profits as well as the lower academic reputation of their students. Based on a sample of institutions from the Manila area (from 1963 and 1968), students from nonprofit religious institutions pass these standardized tests at an average rate of 38 percent, whereas students from for-profit institutions pass the same tests at a lower rate of 18 percent. For-profits, however, produce a much greater number of students taking the tests, and therefore pass a much greater number of students through the tests. Students at for-profits are approximately ten times more likely to take the tests. Adjusting for the lower pass rate from for-profits, the for-profits are putting about five times the number of students through the tests as the non-profits, even though for-profits educated no more than three-fifths of all Filipino students at the time (Miao 1971, p. 207).
This is broadly similar to the patterns we see in the United States. You might conclude that the for-profit status is more useful when an external test takes care of the signaling, and that a non-profit status is required when no test certifies quality. But why exactly should that be the case? Is the non-profit institution, by being so jealous of reputation, perks, and donations itself, a better producer of signals? If signaling yields so much private value, why can't a private for-profit make a sufficiently strong commitment to a credible signal?
My paper has been published in this book.
What is the signaling value of finishing high school?
According to a new paper from Paco Martorell and Damon Clark, not so much:
Although economists acknowledge that various indicators of educational attainment (e.g., highest grade completed, credentials earned) might serve as signals of a worker’s productivity, the practical importance of education-based signaling is not clear. In this paper we estimate the signaling value of a high school diploma, the most commonly held credential in the U.S. To do so, we compare the earnings of workers that barely passed and barely failed high school exit exams, standardized tests that, in some states, students must pass to earn a high school diploma. Since these groups should, on average, look the same to firms (the only difference being that “barely passers” have a diploma while “barely failers” do not), this earnings comparison should identify the signaling value of the diploma. Using linked administrative data on earnings and education from two states that use high school exit exams (Florida and Texas), we estimate that a diploma has little effect on earnings. For both states, we can reject that individuals with a diploma earn eight percent more than otherwise-identical individuals without one; combining the state-specific estimates, we can reject signaling values larger than five or six percent. While these confidence intervals include economically important signaling values, they exclude both the raw earnings difference between workers with and without a diploma and the regression-adjusted estimates reported in the previous literature.
The full paper you will find here. This to me looks like a fairly clean test. I still think signaling matters a great deal, but that is distinct from thinking that a high school diploma is the relevant form of such signaling.
My debate with Bryan Caplan on education
Bryan writes:
The other day, Tyler Cowen challenged me to name any country that I consider under-educated. None came to mind. While there may be a country on earth where government doesn't on net subsidize education, I don't know of any.
…This analysis holds in the Third World as well as the First. The fact that Nigerians and Bolivians don't spend more of their hard-earned money on education is a solid free-market reason to conclude that additional education would be a waste of their money.
I would first note that many parts of many poor countries, today, receive de facto zero government subsidies for education. Or put aside the issue of government provision and ask if you were a missionary and could inculcate a few norms what would they be? Many regions – in particular Latin America — are undereducated for their levels of per capita income. I view this as a serious cultural failing, most of all in terms of its collective social impact. In contrast, Kerala, India is very intensely educated for its income level and that brings some well-known benefits in terms of social indicators and quality of life.
If I think of the Mexican village where I have done field work, the education sector "works" as follows. No one in the village is capable of teaching writing, reading, and arithmetic. A paid outsider is supposed to man the school, but very often that person never appears, even though he continues to be paid. Children do have enough leisure time to take in schooling, when it is available. I am told that most of the teachers are bad, when they do appear. You can get your children (somewhat) educated by leaving the village altogether, and of course some people do this. In the last ten years, satellite television suddenly has become the major educator in the village, helping the villagers learn Spanish (Nahuatl is the indigenous language), history, world affairs, some science from nature shows, and telenovela customs. The villagers seem eager to learn, now that it is possible.
That scenario is only one data point but it is very different than the "demonstrated preference" model which Bryan is suggesting. Bolivia and Nigeria are much poorer countries yet and they have dysfunctional educational sectors as well, especially in rural areas. Bad roads are a major problem for "school choice" in these regions, just as they are a major problem for the importation of teachers.
A simple model is that underinvestment in infrastructure results in a high shadow value for marginal increments of education. Model = high fixed costs, liquidity constraints if you wish, high shadow values for lots of goods and services, toss in social externalities to raise the size of the distortion. I read Bryan as focusing on "the fixity of the fixed costs" and claiming it is too costly to get the service through, relative to return.
Of course Bryan favors rising wealth and falling fixed costs, as do I. But in the meantime he also should admit that a) education "parachuted" in from outside can have a high marginal return, b) collectively stronger pro-education norms raise demand and can alleviate the high fixed costs problem, c) there are big external benefits, some operating through the education channel, to lowering the fixed costs, d) stronger pro-education norms put a region closer to a "big breakthrough" and weaker education norms do the opposite, and e) a-d still impliy "too little education" is the correct judgment. On b), some evangelical groups in Latin America do seem to have stronger pro-education norms in their converts and it appears to be much better for the children of these families and no I'm not going to buy any response which ascribes the whole effect to selection.
I believe that Bryan's own work on voting suggests significant positive social external benefits from education, although he is not happy with how I characterize his view here. I also believe his views on children suggest strong peer effects across children (parental effort doesn't matter so much in his model and the rest of the influence has to come from somewhere), though in conversation I am again not sure he accepts this characterization.
I consider most countries in today's world to be undereducated.
Signaling models are important but they are not the only effect and of course a lot of signaling is welfare-improving for reasons of screening and sorting and character reenforcement. The traditional story of high social returns to education is supported by evidence from a wide variety of different fields and methods, including cross-sectional growth models, labor economics, political science, public opinion research, anthropology, education research, and much more. You can knock some of this down by stressing the endogeneity of education, but at the end of the day the pile of evidence, and the diversity of its directions, is simply too overwhelming.
Online Education and the Market for Superstar Teachers
I have argued that universities will move to a superstar market for teachers in which the very best teachers use on-line instruction and TAs to teach thousands of students at many different universities. The full online model is not here yet but I see an increasing amount of evidence for the superstar model of teaching. At GMU some of our best teachers are being recruited by other universities with very attractive offers and some of our most highly placed students have earned their positions through excellence in teaching rather than through the more traditional route of research.
I do not think GMU is unique in this regard–my anecdotal evidence is that the market for professors is rewarding great teachers with higher wages and higher placements than in earlier years.
The online aspect, which enhances the market for superstars, is also growing. Here from a piece on online education in Fast Company are a few nuggets on for-profit colleges which have moved online more quickly than the non-profits.
Today, for-profit colleges enroll 9% of all students, many of them in online programs. It's safe to assume they'll soon have many more….for-profits are the only sector significantly expanding enrollment — up 17% since the start of the recession in 2008….the University of Phoenix, which with 420,000 students is the largest university in North America.
Interesting explanation for why for-profits still lag:
Since there are no generally accepted measurements of learning in traditional higher education, the proxy for the value of a diploma on the job market is prestige. Rankings like those of U.S. News & World Report depend on reputation; spending per student, including spending on research; and selectivity — a measure of inputs, not outputs. On all these measures, for-profits come up short.
But how long can we expect the inability to measure to protect academia when there are big profits to be made? Robin Hanson would argue that most of what is going on is signaling, i.e. that prestige is what is being bought and sold and not prestige as a proxy for some other measure of quality. No doubt there is some truth to that but there are plenty of fields, dentistry, engineering, computer science where measurable quality matters as well.
It's true that the university equilibrium has lasted a long time but that doesn't mean it can't break down very quickly.
Addendum: Bryan Caplan laughs but Arnold Kling has the right idea.
Education isn’t mainly about signalling
We find that employer learning about productivity occurs fairly quickly after labor market entry, implying that the signaling effects of schooling are small.
Here is much more. And here is more yet; this second paper estimates the speed of employer learning and uses that estimate to bound the value of the signal at no more than 28 percent of the value of education. I consider this devastating to the signaling hypothesis. How can ?? years of schooling be needed to signal your quality, if your employer often knows your quality within months?
In my view education is mainly about indoctrination to give you more productive habits. So yes it is learning, but not in the way they might have told you, and that is why it so often does not feel like learning.
Why education is productive — a parable of men and beasts
We know the paradox. Education improves earnings but most formal schooling appears to be a waste of time. Many economists claim that education is mostly a means of signaling quality.
I view education as a self-commitment to being a more productive kind of person. Education is about self-acculturation.
Men are born beasts. But education gives you a peer group, a self-image, and some skills as well. Getting an education is like becoming a Marine. Men need to be made into Marines. By choosing many years of education, you are telling yourself that you stand on one side of the social divide. The education itself drums that truth into you.
Similarly, if you become a Mormon or a Protestant in Central America, your life prospects go up. It is not that Mormons have learned so much more, but rather they have a different sense of self. They have a positive self-image about their destiny in life and choose a different set of peers. They also choose not to drink.
The beasts model differs from classic signaling theory. If education is pure signaling, just give everyone a standardized test in seventh grade and then close up the schools. But the process of self-image formation, at least for most people, is far from complete at that point.
That being said, education will look like what the signaling model predicts. It will be about subtle brainwashing, image, and learning markers of status. What the signaling model misses is how important those features are for your subsequent productivity.
Nerds will hate education and tend to embrace the signaling model. Their sense of self is often formed quite early, and they do not why so much time should be wasted in school. This is one reason why the signaling model is so popular in economics.
Part of the East Asian growth miracle was that so many citizens bought into the self-acculturation model and imposed it on their children.
So how much acculturation do you need?
If you move from Myanmar to America at age seven, you probably grow up as an American. Age thirteen, you probably grow up as an American. Age eighteen, it is harder to say. If you move at age twenty-five, you probably stay fairly Burmese. So your identity is shaped by what you are doing, and your peers, between the critical ages of thirteen to your early twenties. Those are precisely the years covered by our educational system.
Of course apprenticeships can turn beasts into men, but apprenticeships also turn them into working-class men. You spend your childhood hanging out with other laborers. As society becomes wealthier, more parents are willing to spend on education rather than apprenticeships.
Comments are open. I am especially interested in how such a theory might be tested, and what it implies for the optimal content of education.
What is the value of studying a foreign language in high school?
Bryan Caplan writes:
While promoting my new book, I’ve repeatedly argued that foreign language requirements in U.S. schools are absurd and should be abolished. For two distinct reasons.
Reason #1: Americans almost never use their knowledge of foreign languages (unless they speak it in the home).
Reason #2: Americans almost never learn to speak a foreign language very well in school, even though a two- or even three-year high school requirement is standard.
This double whammy is easily generalized. If studying X for years yields minimal knowledge, and you wouldn’t use X even if you knew it, you could defend X as an elective. But how could anyone defend X as a requirement?
My view is this:
1. Learning at least one language is of high value for America’s elite. It helps them see different points of view, and prepares a small number for careers in the foreign service or in other international capacities. It makes intellectuals deeper and improves their scholarship. This is a sliver of the population, but the global rate of return to having it is very high. And I suspect a significant portion of this population received its first exposure to a foreign language in high school (or even junior high), which in turn may have helped them do “study abroad.”
2. If we could target foreign language acquisition to this future elite, I would gladly let the vast majority of the student population off the hook. One move toward this end would be to use foreign language “tiebreakers” for those wishing to finish in the top quarter of their high school class. I would like to see a study of whether this would produce sufficiently accurate targeting.
3. Here is an estimate that knowing a foreign language brings a wage premium of about 2%; I have not read the paper, but I do not wish to overclaim on the causality front. It still is measuring something about quality.
4. Many European countries teach their citizens English (above all), French, and German with reasonable success and high returns, especially for English. So it is possible to succeed with this endeavor within a public education system.
5. As English is the closest we have to a global language, the imperative for Americans to learn another language is surely smaller than for say Danes to learn English.
6. I do not think opportunity costs during high school are especially high.
7. Overall, not only is education signaling, but an educational system itself is part aspirational and is also a signal. I see high returns to America having relatively cosmopolitan aspirations, and signaling that it does not take its dominant status, linguistic and otherwise, for granted. I do not mind commandeering language education toward this end. Let’s send the right signal rather than acquiescing in a civilizational retrogression.
8. My casual impression is that elite private high schools usually take foreign language training pretty seriously.
So I do not see big gains by eliminating foreign language requirements in American high schools, though I would consider moves toward more effective targeting. Most of all, I’d like to see the whole thing followed up more with additional study abroad programs at the later undergraduate level.
Addendum: Disagreement aside, I am so pleased that this year the two big exciting economics books so far are by Bryan and Robin Hanson. Do buy and read both! As for Bryan, maybe some of you are thinking you just can’t accept his argument about education being so wasteful. But I’ll say this: Bryan always defends his “absurd” views much better than you think he is going to be able to. Trinity College just announced it will be charging $71,660 next year — do you really think the value-added in terms of learning has gone up so much?
College average is over
Concord University in West Virginia and Clemson University in South Carolina were both founded shortly after the Civil War. During the 20th century, each grew rapidly. Now, the two public universities that sit just 300 miles apart face very different circumstances.
Clemson, a large research university, enrolled its largest-ever freshman class in 2017 and in December broke ground on an $87 million building for the college of business.
Concord, a midsize liberal-arts school, has seen its freshman enrollment fall 19% in five years. It has burned through all $12 million in its reserves and can’t afford to tear down two mostly empty dormitories…
According to an analysis of 20 years of freshman-enrollment data at 1,040 of the 1,052 schools listed in The Wall Street Journal/Times Higher Education ranking, U.S. not-for-profit colleges and universities are segregating into winners and losers—with winners growing and expanding and losers seeing the first signs of a death spiral.
The Journal ranking, which includes most major public and private colleges with more than 1,000 students, focused on how well a college prepares students for life after graduation. The analysis found that the closer to the bottom of the ranking a school was, the more likely its enrollment was shrinking.
That is from Douglas Belkin at the WSJ, via multiple MR readers, some of them excellent.
Many of you have asked me for further commentary on Bryan Caplan’s education book, which is doing very well. I’ll be doing a Conversation with Bryan, but for the time being I’ll say this: everyone obsesses over the mood-affiliated “I’m going to lower the status of education signaling argument.” Hardly anyone has discussed what to me is Bryan’s strangest assumption, namely a sociologically-rooted, actually anti-economics “conformity is stronger than you think” argument, which Bryan uses to assert the status quo will continue more or less indefinitely. It won’t. To the extent Bryan is correct (and that you can debate, but at least he is more correct than most people in the educational establishment will let on), competency-based learning and changes in employer behavior will in fact bring about a new equilibrium…not quickly, but certainly in well under two decades.
And what about on-line education? Well, a lot of students don’t like it because they have to actually work on their own and pay attention. To the extent education really is just signaling, that should give on-line options a brighter future all the more. But not in the Caplanian world view, as conformity serves once again as an intervening factor. For better or worse, Bryan’s book subverts economics as a science at least as much as it does education. Bryan of course is smart enough to see the trade-offs here, and he knows if the standard model of economic competition were allowed to reign supreme, we would (even with subsidies, relative to those subsidies) tend to see strong moves toward relatively efficient means of signaling, if only through changes in the relative sizes of institutions.
A Diamond Pricing Puzzle
In our textbook, Modern Principles of Economics, Tyler and I predicted that lab grown diamonds would break the DeBeers cartel. Well, it’s finally happening.
Bloomberg: One of the world’s most popular types of rough diamonds has plunged into a pricing free fall, as an increasing number of Americans choose engagement rings made from lab-grown stones instead.
…the scale and speed of the pricing collapse of one of the diamond industry’s most important products has left the market reeling.
…De Beers has cut prices in the category by more than 40% in the past year…The impact on De Beers was clear…first half profits plunged more than 60% to just $347 million, with its average selling price falling from $213 per carat to $163 per carat.
The puzzle, however, is why has it taken so long? The diamond market does have some peculiar features. Buyers of engagement rings don’t necessarily benefit from lower-prices per se as a diamond ring is a signal. If the cost of the signal goes down, people need to spend more to send the same message. An inexpensive engagement ring is thus something of a contradiction in terms, so price shopping is less intense. Nevertheless, the early buyers of lab-grown diamond rings should still benefit because the rings can’t be distinguished by the naked eye. Neither the bride, nor her friends, have to know the $10,000 ring only cost $5,000, right? Right?
Well maybe not right. DeBeers also produces lab-grown diamonds and they have a very strange pricing strategy:
De Beers started selling its own lab-grown diamonds in 2018 at a steep discount to the going price, in an attempt to differentiate between the two categories. The company expects lab-grown prices to continue to tumble, in what it sees as a tsunami of more supply coming on to the market, Rowley said. That should create an even bigger delta in prices between natural diamonds and lab grown, helping differentiate the two products, he said.
What? Ordinarily, the bigger the price between a competitor and its substitute the greater pressure on the competitor to lower prices! Yet DeBeers is gambling that the bigger the difference in price between natural and lab grown diamonds the bigger the demand for natural diamonds! Strange. The only way I see this working is if the fiancée knows the price of the ring, which maybe they do! In that case, the buyer still has to spend 10k and doesn’t care whether it’s 10k on synthetic diamonds or 10k on natural grown diamonds. But 10k on synthetic diamonds will get you more carats so we need an equilibrium in which a smaller diamond signals more expensive. But that runs against hundreds of years of expectations! And remember natural and lab grown diamonds are indistinguishable by the naked eye. It’s one thing for the fiancée to know the price of the diamond but surely her friends judge by what they can see, namely the size of the ring. Which signal is the most important to send?
All of this goes to show how peculiar the signaling model can be. Keep diamonds in mind when thinking about the the market for higher-education. Harvard is never going to lower prices and might they even raise prices as state schools lower their price?
David J. Deming now has a Substack
Forked Lightning, he is from the Harvard Kennedy School, and he is a co-author on the piece with Chetty and John N. Friedman featured on MR earlier today.
In his inaugural post he explains some further results from the paper in more detail:
The second part [of the paper] shows the impact of attending an Ivy-Plus college. Do these colleges actually improve student outcomes, or are they merely cream-skimming by admitting applicants who would succeed no matter where they went to college?[2]
We focus on students who are placed on the waitlist. These students are less qualified than regular admits but more qualified than regular rejects. Crucially, the waitlist admits don’t look any different in terms of admissibility than the waitlist rejects. We verify this by showing that being admitted off the waitlist at one college doesn’t predict admission at other colleges. Intuitively, getting in off the waitlist is about class-balancing and yield management, not overall merit. The college needs an oboe player, or more students from the Mountain West, or whatever. It’s not strictly random, but it’s unrelated to future outcomes (there are a lot of technical details here that I’m skipping over, including more tests of balance in the waitlist sample – see the paper for details). We also show that we get similar results with a totally different research design that others have used in past work (see footnote 2).
Almost everyone who gets admitted off an Ivy-Plus college waitlist accepts the offer. Those who are eventually rejected go to a variety of other colleges, including other Ivy-Plus institutions. We scale our estimates to the plausible alternative of attending a state flagship public institution. In other words, we want to know how an applicant’s life outcomes would differ if they attended a place like Harvard (where I work) versus Ohio State (the college I attended – I did not apply to Harvard, but if I did I surely would have been *regular* rejected!)
We find that students admitted off the waitlist are about 60 percent more likely to have earnings in the top 1 percent of their age by age 33. They are nearly twice as likely to attend a top 10 graduate school, and they are about 3 times as likely to work in a prestigious firm such as a top research hospital, a world class university, or a highly ranked finance, law or consulting firm. Interestingly, we find only small impacts on mean earnings. This is because students attending good public universities typically do very well. They earn 80th-90th percentile incomes and attend very good but not top graduate schools.
The bottom line is that going to an Ivy-Plus college really matters, especially for high-status positions in society.
In a further Substack post, Deming explains in more detail why the classic Dale and Kruger result (that, adjusting for student quality, you can go to the lesser school) no longer holds, due to limitations in their data. Of course all this bears on the “education as signaling” debates as well.
By the way, it took the authors more than five years to write that paper. Deming adds: “The paper is 125 pages long. It has 25 main exhibits (6 tables and 19 figures), and another 36 appendix exhibits.”
Here is Deming’s home page. He is a highly rated economist, yet still underrated.
Why do wages grow faster for educated workers?
The U.S. college wage premium doubles over the life cycle, from 27 percent at age 25 to 60 percent at age 55. Using a panel survey of workers followed through age 60, I show that growth in the college wage premium is primarily explained by occupational sorting. Shortly after graduating, workers with college degrees shift into professional, nonroutine occupations with much greater returns to tenure. Nearly 90 percent of life cycle wage growth occurs within rather than between jobs. To understand these patterns, I develop a model of human capital investment where workers differ in learning ability and jobs vary in complexity. Faster learners complete more education and sort into complex jobs with greater returns to investment. College acts as a gateway to professional occupations, which offer more opportunity for wage growth through on-the-job learning.
That is from a new paper by David J. Deming. You will note how this relates to the signaling vs. human capital debates over education. Signaling your quality may put you in a position to learn more over time, as your initial offer likely will be better if you come out of Harvard. But over the longer haul, the wages you earn are the result of what you have learned, not just your initial level of quality. So most of the return to education is that you learn more over time, and thus most of the return is learning-related rather than initial quality-related. Overall, signaling models behave rather awkwardly in dynamic rather than purely static settings.
Grade non-disclosure agreements
I had never heard of those, but it turns out they are common at top business schools. Egads! Here are some results:
We study the effects of grade non-disclosure (GND) policies implemented within MBA programs at highly ranked business schools. GND precludes students from revealing their grades and grade point averages (GPAs) to employers. In the labor market, we find that GND weakens the positive relation between GPA and employer desirability. During the MBA program, we find that GND reduces students’ academic effort within courses by approximately 4.9%, relative to comparable students not subject to the policy. Consistent with our model, in which abilities are potentially correlated and students can substitute effort towards other activities in order to signal GPA-related ability, students participate in more extracurricular activities and enroll in more difficult courses under GND. Finally, we show that students’ tenure with their first employers after graduation decreases following GND.
That is from a new paper by Eric Floyd, Sorabh Tomar, and Daniel Lee, via the excellent Kevin Lewis.
What is exactly the right way to model this practice? If you believe in the signaling model of MBA education, is this an attempt to game the signal and avoid zero-sum comparisons? Can that boost the overall aggregate value of the signal?
Or maybe you believe the MBA is a mix of learning/networking and signaling. You want to encourage more learning at the margin, without the person having to incur a signaling penalty through some lower grades.
Or does this simply show that top prospective MBA students hold the bargaining power, and these arrangements help recruiting by making life easier for those students?
What else? Here are other readings on the practice. Where adopted, the policies seem quite popular with students. And the policies do not restrict showing the grades to other schools, though perhaps for MBAs that is not so relevant?